Bidding for Hotel Rooms is a Reality: Here’s What it Means
Have you ever been to an auction of anything (furniture, charity or property) and wondered why auctioneers (especially the American ones) talk like that? What’s with all the extra words and gibberish? According to an article published by Slate back in 2010, it’s all designed to create a sense of urgency and competition amongst bidders — which makes sense when you think about it. Auctions are a social activity, and even online auctions (ebay, for example) tend to inspire competitive bidding.
For selling rooms, OTAs actively mimic this sense of urgency and competition in the digital booking space. Expedia, booking.com, and even AirBnb use auctioneering tactics to nudge guests toward making a reservation. Some of the psychological cues are so blatant that it’s impossible not to be reminded of a man in a cowboy hat with a gavel.
But the concept of “bidding” for hotel rooms is nothing new — in fact, it’s a logical extension of OTAs and dynamic pricing. Hotwire and Priceline have long been encouraging travelers to “name your own price” and “take advantage of last minute deals.” You can filter by star rating, general location and other criteria — but you won’t get the name of the hotel until you pay in.
Unfortunately, Hotels have a few more conditions than a normal furniture auction because they are also bound by price parity agreements, AND they pay a sizable and variable percentage of every booking (anywhere from 15 to 30%) to the selling agent. Given the recent valuation of Priceline Group at a staggering $115 billion AUD one can understand why hotels want a better deal.
Enter hotelbids.com. The entrepreneur who founded hotel.com (and later sold it to Expedia) is hoping this new platform will break the OTA paradigm and put more power in the hands of hoteliers. The logic is simple: Direct deals, no price parity, and a simplified fee structure.
Just like hotels get around parity by offering private deals to rewards members, hotelbids.com aims to satisfy parity agreements by creating private agreements between hotels and guests. The customer’s bid and hotel’s acceptance of that bid are not publicly displayed or handled by any third party. The rates are not public, and therefore not subject to parity agreements. Essentially, hotels have a direct pipeline to bidding customers.
For this, hotelbids takes a flat fee of $7 per night booked. OTAs usually take a percentage of every booking. It’s the same with AirBnb: The higher the spend, the higher the fee. Hotelbids charges a simple flat fee per night. This seems to restore some of the power to hotels although of course it all depends on the final bids. Only the numbers will bear it out.
What does this mean?
Any new platform trying to break into the OTA space (hotelbids is successful in India and set to challenge in North America, but success could drive expansion into Australian and other markets) faces a steep uphill climb. There’s a reason why Priceline is worth $87 billion USD. They’ve been around a long time, and the only thing deeper than their coffers appears to be their user base.
But if the last few years have taught us anything in the hospitality industry, it’s that paradigm can shift quickly. If something is going to come along and revolutionize the way hotels and OTAs work together (even if it isn’t hotelbids.com), there probably won’t be much warning.
Whatever happens, the big OTAs aren’t about to go quietly. Instead, they’ll adapt. They’ll make concessions. They’ll acknowledge that hotels do need to retain a strong degree of autonomy, inventory control, and economic advantage (and dare I say viability)— at least if the system as a whole is going to work. They’ll acknowledge and act on these things when doing so becomes more profitable than not.
It’s anybody’s guess how hotelbids.com is going to perform in the American market. But for hotels who feel boxed in by OTAs, a little straight-laced auctioneering (cowboy hat and gavel optional) might be a meaningful step toward the future.
For further industry insight, please follow the links below.
February 07, 2018
January 24, 2018
December 27, 2017